Genting scales the bond highlands

Gaming group brings another popular international bond deal from Malaysia.

Genting Berhad, Malaysia's only gaming operator, completed its debut eurobond yesterday (September 14). With Citigroup and HSBC as lead managers, the group raised $300 million after lifting the deal by $50 million on the back of a strong order book totaling $1.81 billion.

Like Telekom Malaysia the day before, Genting benefited from the momentum generated by the government's budget address on Friday and positive ratings moves by Moody's. Pricing was revised in from initial guidance of 137bp to 140bp over Treasuries to between 132bp and 134bp and then priced at the tight end.

With an issue price of 99.390%, the Baa2/BBB+ rated 10-year deal carries a coupon of 5.375% to yield 5.455%. This equates to 132bp over Treasuries or 88bp over Libor. Fees total 30bp.

Some 104 investors are said to have participated, with a geographical split of 74% Asia and 26% Europe. These then have a further split of 33% Hong Kong, 31% Singapore, 14% UK, 11% Switzerland, 10% other Asia and 1% other Europe.

By investor type, banks took 49%, asset managers 31%, private banks 10% and insurance companies 10%.

The two main pricing comparables are Telekom Malaysia, which provides the most recent bond from Malaysia and Malaysia International Shipping Corp (MISC), which has the same rating as Genting.

Thanks to Moody's unprecedented upgrade of a telecom operator above its sovereign ceiling, Telekom Malaysia is currently rated A3/A- compared to a sovereign rating of Baa1/A-. The group priced a 10-year deal yesterday at 112bp over Treasuries or 66bp over Libor. It then traded in about 1bp, meaning Genting has priced about 20bp wider.

MISC also has a recent July 2014 bond outstanding. This was variously quoted yesterday at a bid level of 116bp to 118bp over Treasuries, equating to about 75bp over Libor. Relative to MISC, Genting's pricing seems relatively generous at 13bp to 15bp wider.

However, MISC is not a direct comparable because it undoubtedly benefits from the halo effect of its 62% ownership by Petronas and has quasi sovereign status, whereas Genting is a pure corporate play. Genting is also likely to have been penalized very slightly by its gaming background, which would have precluded some investor participation.

What Genting does offer is much needed diversification away from the quasi sovereign troika of Petronas, Telekom and Tenaga. Aside from these three, the only other issuance from Malaysia in recent years has come from the banking sector.

Like the sovereign and its related entities, Genting is also on positive outlook from Moody's. Given the agency has already upgraded Telekom to A3, bankers believe the sovereign will achieve single-A status within the week. However, they also believe this pricing premium is already reflected in Genting's launch spread.

Proceeds from the bond deal will add to the group's growing cash pile, which was bolstered last autumn by a debut exchangeable, also for $300 million. Pre deal, Genting had a net cash position of $440 million and a debt to EBITDA ratio of 1.02 times.

The group has been building up its dollar denominated debt with a view to expanding its international portfolio. It has already made big investments in the UK where it owns 15.2% in London Clubs International, which owns seven casino licenses in London. It hopes to build a further 20 over the next five years.

Leisure and gaming accounted for 68% of group EBITDA in 1H04, with power accounting for a further 16% and plantations 8%. It also runs Star Cruises, the world's third largest cruise operator.

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